Drain to Gain in ETFs, Panic to Clarity on EU's AMLR

• Reversal from net outflows to net inflows in the US bitcoin ETF universe
• BlackRock's tokenized fund (BUIDL) attracts $240 million since its launch
• Court denies Coinbase's motion to drop SEC case, allowing regulator to proceed with lawsuit

From drain to gain, capital inflows revitalize the ETF market

This week, the cryptocurrency markets showed a slight slowdown in their upward trajectory, with a modest 2.6% increase in total market capitalization, while bitcoin dominance remained above 52%. Among the major players, bitcoin recorded a 2.3% gain compared to the previous week, while ether experienced a marginal decline of 0.4%.

In the world of US-listed spot bitcoin ETFs, after a week of outflows, there was a reversal with net inflows observed this week. Since their introduction in January through, up to the end of March 27, these ETFs have collectively attracted a total cumulative net inflow of $11.9 billion, spearheaded by Blackrock IBIT and Fidelity FBTC. On the flip side, Grayscale GBTC has seen cumulative net outflows of $14.6 billion during the same period, primarily due to concerns regarding fees and bankruptcy liquidations. Some ETF issuers have pointed out that the trading activity in the space has been largely driven by individual traders and a few hedge funds. This observation suggests that the market is still in its early stages, and significant institutional investment, often considered more stable or "stickier" money, has yet to fully enter the space.

Last week, BlackRock launched BUIDL, a fund that garnered $240 million since debut, as reported by Bloomberg on Wednesday. The BlackRock USD Institutional Digital Liquidity Fund (BUIDL) operates as a tokenized money market fund, investing in US Treasury bills, repurchase agreements, and cash reserves. Utilizing the Ethereum blockchain with assistance from Miami-based Securitize, BUIDL tokens are issued, aiming to maintain a stable value of $1 per token while distributing dividends in the form of tokens representing US dollar yield to qualified investors. Following this launch, Ondo, in a blog post, announced plans to allocate "a substantial portion" of assets from its tokenized short-term US Treasury bills ETF, OUSG, into BUIDL.
BlackRock CEO Larry Fink has expressed that the possibility of an ether ETF remains viable, even if the US Securities and Exchange Commission (SEC) classifies the cryptocurrency as a security, potentially subjecting it to increased regulatory scrutiny. Eight entities, including BlackRock, have filed applications with the SEC to introduce a spot ether ETF. The SEC is expected to reach a decision in May, with industry experts suggesting that the approval for these applications is unlikely, regardless of how the SEC categorizes ether.

From panic to clarity on EU's AMLR, court ruling on SEC lawsuit against Coinbase

Over the weekend, panic swept through the crypto community following misleading reports of an EU ban on anonymous crypto wallets and self-custodial payments. These reports misinterpreted comments made by Patrick Breyer, a member of the European Parliament, regarding the approval of the new EU Anti Money Laundering Regulation (AMLR). However, Circle’s EU Strategy and Policy Director, Patrick Hansen, promptly clarified that self-custody wallets would remain unaffected, with peer-to-peer transfers explicitly excluded from the AMLR. While the regulation does introduce stricter measures for non-KYC'd wallets in transactions, its primary aim is to ensure compliance among financial institutions and crypto-asset service providers (CASPs) with anti-money laundering and counter-terrorist financing standards. All CASPs, including centralized crypto exchanges and custodial wallet providers regulated under the Markets in Crypto-Assets legislation (MiCA), must adhere to standard KYC/AML procedures such as customer due diligence. MiCA is the EU's regulatory framework for digital assets, enforced since June 2023 and set to take full effect on December 30, 2024.
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In a separate development, Judge Katherine Polk Failla of the US District Court for the Southern District of New York has ruled that the SEC has presented a sufficient case alleging that Coinbase is operating as an unregistered broker, exchange, and clearinghouse. Consequently, the lawsuit against the cryptocurrency company will proceed. The federal judge has set an April 19 deadline for the parties to establish a case scheduling plan. The SEC initiated legal action against Coinbase last year, simultaneously with its lawsuit against fellow exchange Binance, alleging violations of federal securities laws by offering trading and staking services to the public. The SEC also contended that Coinbase Wallet operated as an unregistered brokerage. While acknowledging the SEC's argument that certain tokens listed on Coinbase Wallet could meet the criteria for "investment contracts," the judge dismissed the notion that Coinbase was functioning as a brokerage in this context.
This case, among others, holds significance for determining the operational framework of the crypto industry in the US. If the court rules in favor of treating exchanges similarly to national securities exchanges, as advocated by the SEC, it could lead to heightened restrictions and disclosure requirements for these platforms, potentially limiting the range of tokens available to retail investors.

Macro pulse 

Among TradFi assets, US equities saw a 0.5% uptick compared to the previous week, while Oil futures remained almost unchanged, showing a modest weekly gain of 0.1%.

Addressing the late hours of Wednesday's US trading session, Federal Reserve Governor Christopher Waller underscored that recent lackluster inflation figures bolster the argument for the Federal Reserve to refrain from adjusting its short-term interest rate target. Market sentiment regarding the timing of the first rate cut has slightly shifted, with expectations for the cut to take place at the Fed's June meeting easing to a 60% probability, down from 67% recorded around this time last week, as indicated by the CME FedWatch tool. Elsewhere the US Dollar index rallied 1.2%, the 10 year US Treasury slipped by 9 bps and the Gold & Silver rose 2% week on week.

*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on March 28, 2024 

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